The present invention pertains to a method and system for trading financial securities or instruments, and more specifically to the web based solicitation, collection and transparent real time dissemination of bids on specific lots of securities.
Traditional methods of trading securities vary among the types traded. Most common is the two-sided market or quoted market. With this method market makers express a bid and or offer side on a specific security. That market is then disseminated electronically, verbally or in print to other interested parties who may add to or act upon the market. This method of trading works well in actively traded securities such as equities or US Treasuries. There are other less actively traded securities markets where the liquidity required for this method to be effective is not readily available. Those markets have developed alternative methods of trading.
In the US municipal bond market, there are in excess of 1,200,000 unique securities outstanding, each identified by a CUSIP number, comprising obligations of approximately 50,000 issuers. CUSIP is the acronym for Committee on Uniform Securities Identification Procedures. On average approximately 17,000 unique securities trade daily. Due to market supply and demand those may vary on a daily basis. It is not feasible to expect active markets on all municipal securities. In response to this circumstance the US municipal bond market employs two additional methods of trading.
Dealers and brokers compile lists of offerings on lots of bonds that are available for purchase at a specified price. They disseminate these lists verbally, in print or electronically to other market participants, who in turn may enter into negotiation to purchase all or part of said lot. These lists are commonly referred to as offering lists or offering runs. They are available on various trading platforms and from information service providers as well as being distributed verbally and by e-mail.
The second additional method of trading employed in the US municipal bond market is “Bid Wanted”. Prior art for this method can be traced back to 1949 with the formation of J.J. Kenny & Co. a municipal securities broker's broker. In this process the potential seller will solicit a bid through a “broker's broker” [inter-dealer broker or “IDB”]. To protect the anonymity of parties involved the broker conducts the process acting as an agent on an undisclosed basis. The seller maintains the right to determine if the bonds will trade. This method may be carried out verbally, electronically or via a hybrid method combining voice and electronic trading. In this process bids are only disclosed to the seller.
Legal and regulatory requirements imposed by the NASD and the SEC seek “best price” execution and more open methods of trading. In markets where obtaining the “best price” for securities that may be inactive or infrequently traded, this presents a unique challenge.
The availability of market data alone does not ensure transparency. The open dissemination of this data is a demanding task of it's own. Obtaining dynamic updating of securities markets on a computer requires the use of a dedicated terminal or of a program installed on the end user's computer. Dedicated terminals are expensive and take up valuable desktop space. The use of a program has several inherent problems evident in the areas of connectivity and network security. In many cases there are changes required to the end users network infrastructure and or security policies for the program to work properly. The use of client side software also presents the problem of maintenance. Upgrades or modifications to the program require users to re-install or update the software residing on the client, a time consuming and therefore expensive process. U.S. Pat. No. 6,876,309 issued Apr. 5, 2005 to David Lawrence discloses a computer implemented bond trading system for a private electronic auction conducted by a broker between multiple bidders and a seller whose identity is undisclosed. Although the broker's computer system receives the bids and determines the high bid, the bids are not disclosed to the various bidders or participants, and there is no provision for automatically updating the bids on a computer screen visible to all bidders in real time as the auction proceeds.